Why Is Sri Trang Agro Industry Cheap?

Recently Warren Buffet admitted that he eats “like a six year old”.

He reckons that death rates are some of lowest amongst six year olds. So, eating like an infant could actually be good for you.

Despite the obvious flaw in his argument, the spritely 84-year old super investor isn’t doing too badly.

This, however, could be a good example of how numbers and figures can sometimes be misleading. And to properly understand raw data, we should try to look at the story behind the numbers.

Take for example the automobiles and components sector here in Singapore.

Four out of the five companies listed on SGX are priced below their book value. So does the industry, which is worth around S$1b, provide great value? Or could there be good reasons for the companies to be trading at a discount?

Consider Sri Trang Agro Industry Public Company (SGX: NC2), which is the largest of the five automotive components outfits.

The company manufactures and distributes natural-rubber products for many uses that include car tyres production.

The company is priced below its book value by some 20%. However we cannot say, with certainty, as to whether the company is a value share. There may be good reasons for the discount to book.

For the last three years revenues have fallen. Over the same period, net income has dropped around 20%. Between 2013 and 2014 the company also saw its total assets shrink by around 16%. Perhaps investors fearing another mark down believe that a discount could be justified.

Whilst it may seem that Sri Trang is not an obvious value share, some might have a different opinion about Lizhong Wheel Group (SGX: E94). The designer and manufacturer of aluminium alloy wheels is also priced at a discount to its book value. But this time by a whopping 70%.

However, over the same period that Sri Trang has seen falling revenues and profits, Lizhong has experienced gains – the company’s net income has almost doubled since 2011. In the meantime, the company has also grown its net asset value by around 50%.

These two examples show that more often than not. It is important to dig a little deeper to find the possible reasons behind the  facts and figures. Simply taking numbers at face value is just not enough.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.